Mid-Morning Look: May 29, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, May 29, 2018

U.S. equities open to the downside, dragged lower as Italian political turmoil led to gridlock and set the course for another election after parties failed to form a government in the wake of a poll in March. Treasuries and the U.S. dollar rallied amid the political crisis in Italy, with the 10-year yield now down over 20 basis points from its 7-year highs of 3.11% a little more than a week ago. The euro earlier fell to its lowest levels since July after Monday’s decision by Italian President Sergio Mattarella to block two antiestablishment parties from taking power. European markets widely lower, but well off worst levels as Italy markets cut losses in half (earlier down over 600 points or 3%). Weakness in Europe overshadowed news that North Korean leader Kim Jong Un has dispatched one of his top aides to New York for talks ahead of his planned summit with Donald Trump next month, the U.S. president said. In stock news, busy week of earnings in retail sector (LULU, KORS, AEO, GME, PVH, DLTR, DG) along with a few key results in the tech space (CRM reports in software tonight). Financials among the biggest market declines on lower yields, while energy falls again after leading markets lower as oil extends its losses.


Treasuries, Currencies and Commodities

· In currency markets, Euro continues to pare losses vs. the dollar, down -0.35% at 1.1584 (off lows of 1.151 which was lowest levels since last July). Fears of Italy leaving the euro hammers market sentiment early. The Pound sinks below the 1.33 level vs. the greenback, its weakest levels since mid-November; though the buck sinks against the Japanese yen

· Precious metals erase early gains, with gold trading back below the $1,300 an ounce level, down $10 at $1,299 as strength in the dollar (especially vs. the euro) is overshadowing the need for safe haven assets

· Energy futures lower as WTI crude on pace for its 5th straight decline, falling further after reports late last week that OPEC and Russia are considering lifting oil production in order to hold down recent gains linked to supply shortfalls from Venezuela. The recent spike in the dollar also weighing on commodity sentiment; WTI crude falls below $67 per barrel – down at 3-week lows

· Treasury market’s rise as bond yields extend last week’s declines – 10-yr yield off its lows but below last week closing prices of 2.931% (currently below 2.88% down over 5 bps), while the 2-yr yield under 2.45%. Fears in Europe leading to rotation into safe-haven assets


Economic Data

· Consumer confidence for May rises to 18-year highs of 128.0 from 125.6 prior (but was in-line with estimates); the present situation confidence rose to 161.7 vs. 157.5 last month while the consumer confidence expectations rose to 105.6 vs. 104.3 last month

· The S&P CoreLogic Case-Shiller National Home Price index rose 6.53% y/y in March after rising 6.51% in prior month; S&P/Case-Shiller 20-city NSA index at 208.62 after 206.57 in February; the 20-city SA index rose 0.53% m/m in March after rising 0.84% the prior month


Sector Movers Today

· Auto’s; Ford (F) upgraded to buy at Jefferies saying despite being perceived a laggard, they think Ford is early among global OEMs in re-evaluating how it allocates capital, a process most OEMs outside NA have yet to address; FCAU weak in reaction to weakness in Italian related markets; in auto retail, Wedbush said with only a few days left in the quarter, their proprietary sales tracker indicates that KMX F1Q18 (ending 5/31/18) used unit comps are pacing in the -3% to -4% range, with May comps tracking ~-1% vs. ~-5% in April

· Medical equipment and devices; TRXC shares jump as the FDA has granted 510(k) clearance for the use of its Senhance Surgical System for laparoscopic inguinal hernia and laparoscopic cholecystectomy procedures; DGX was upgraded to overweight at Morgan Stanley; MYGN announced definitive agreement to acquire privately-held Counsyl, Inc. for $375M in cash/stock; Smith’s Group PLC confirmed that it has entered talks with ICUI https://on.mktw.net/2IXycYr

· Refiners; MPC and PSX upgraded to outperform at Wells Fargo as expect the IMO 2020 low sulfur marine fuel rule to be a positive for U.S. Independent/says MPC has the most potential upside in our view; believe PBF, DK and VLO also possess meaningful upside

· Software & Hardware; VRNT is in talks to buy NSO Group, a maker of cyber surveillance products, for about $1B, according to reports https://on.mktw.net/2L2rMrs ; SSYS shares fell after saying its CEO Ilan Levin was stepping down, effective June 1, after less than two years in the role; INFN shares fall on downgrade at Jefferies as believe the current valuation reflects the upside case for the business and we have concerns about the company’s competitiveness in the market; ROKU upgraded to equal-weight at Morgan Stanley citing solid user and monetization growth


Stock GAINERS

· KMI +2%; Canada to buy Kinder Morgan Canada Ltd.’s Trans Mountain oil pipeline and its controversial expansion project for C$4.5 billion ($3.5 billion) https://on.mktw.net/2L5csdS

· MOMO +11%; reported a clean beat across-the-board with revenue coming in 8% above high-end of guidance and non-GAAP net profit 34%/29% ahead of Street on better Q2 guidance

· OLED +8%; after report that Apple might use OLED screens for all of its upcoming iPhone models/current generation of iPhones includes an OLED screen in the iPhone X but LCD screens in the 8 and 8 Plus https://on.mktw.net/2skNZJL

· ROKU +1%; upgraded to equal-weight at Morgan Stanley citing solid user and monetization growth/also notes shares down 25% YTD

· TRXC +10%; as the FDA has granted 510(k) clearance for the use of its Senhance Surgical System for laparoscopic inguinal hernia and laparoscopic cholecystectomy procedures

· ZTO +9%; after BABA said it has led a consortium of investors to buy about 10% of the Chinese courier for $1.38 billion, as it pushes into offline services https://reut.rs/2sgKFjD

Stock LAGGARDS

· FCAU -2%; weaker in reaction to weakness in Italian related markets

· FRED -8%; to be replaced by GME in the S&P SmallCap 600 also effective prior to the open of trading on June 4

· INFN -8%; downgrade at Jefferies as believe the current valuation reflects the upside case

· MELI -8%; tgt was cut to $260 from $330 at Morgan Stanley following weaker than expected Q1 results and to account for updated macro forecasts and a more negative outlook for profitability

· PCG -3%; on 5/25, CAL Fire said PCG equipment caused four small fires in the North Bay last Oct., and said PCG was negligent in three of them

· SSYS ; after saying its CEO Ilan Levin was stepping down, effective June 1, after less than two years in the role

 

 

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Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P.  Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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